The rule requires €4.1bn in additional provisions, of which €1.8bn were charged against the institutions’ 2011 results, and the maintenance of a €2bn capital buffer.

Fitch believes the larger institutions, including the two large international Spanish banks, will be able to meet both the new provisioning and capital buffers without any impact on their ratings due to “the one-off nature of the reform” in 2012.

However, it noted “these requirements will place significant pressure on banks’ stretched income statements and capital management strategies at a time when Spain enters into recession, stimulating consolidation.”

The rating agency predicts smaller banks, particularly those with capital injections from the state’s Fund for Orderly Banking Restructuring (FROB), will face difficulties in complying with requirements in just one year. This is due to their low revenue generation capacity and tighter capital which could mean they are “forced to merge”.

Anne-Sophie d’Andlau, founding partner of French hedge fund CIAM Merger Arbitrage, said the European financial sector could start seeing some corporate activity towards the end of 2012, although this will be limited to asset sales, not full bank sales.

Parts of investment banking businesses will be the first to go, she commented, particularly asset management businesses which generate cash flow and are easy to sell.

Similarly Amit Shabi, portfolio manager of Bernheim, Dreyfus & Co’s event-driven hedge fund Diva Synergy, said “there are a lot of things in the pipeline for Europe’s banks.” When Europe’s institutions begin to struggle, they will “sell the family jewels,” he said. This includes depositary, custodian, asset management, prime broker and real estate subsidiaries.